10-Q 1 form10q.htm FORM 10-Q Flora Growth Corp.: Form 10-Q - Filed by newsfilecorp.com
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

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 000-52776

Flora Growth Corp.

(Exact name of registrant as specified in its charter)

Province of Ontario Not Applicable
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
   

3406 SW 26th Terrace , Suite C-1

 
Fort Lauderdale, Florida 33132
(Address of principal executive offices) (Zip Code)

(954) 842-4989

(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

Common Shares, no par value

FLGC

Nasdaq Capital Market

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.
Yes ☒    No ☐

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).
Yes ☒  No ☐


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
Non-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 November 3, 2023, the registrant had 8,208,595 shares of its common shares, no par value ("Common Shares") outstanding.


Table of Contents

  Page
   
Cautionary Statement Regarding Forward-Looking Statements 2
   
PART I  
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 26
Item 3. Quantitative and Qualitative Disclosures About Market Risk 40
Item 4. Controls and Procedures 40
   
PART II  
Item 1. Legal Proceedings 41
Item 1A. Risk Factors 41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 41
Item 3. Defaults Upon Senior Securities 41
Item 4. Mine Safety Disclosures 41
Item 5. Other Information 41
Item 6. Exhibits 42
   
Signatures 43
 

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:

  • our limited operating history and net losses;
  • changes in cannabis laws, regulations and guidelines;
  • decrease in demand for cannabis and derivative products due to certain research findings, proceedings, or negative media attention;
  • our ability to continue as a going concern absent access to sources of liquidity;
  • damage to our reputation as a result of negative publicity;
  • exposure to product liability claims, actions and litigation;
  • risks associated with product recalls;
  • product viability;
  • continuing research and development efforts to respond to technological and regulatory changes;
  • shelf life of inventory;
  • our ability to successfully integrate businesses that we acquire;
  • our ability to achieve economies of scale;
  • our ability to fund overhead expenses, including costs associated with being a publicly-listed company
  • maintenance of effective quality control systems;
  • changes to energy prices and supply;
  • risks associated with expansion into new jurisdictions;
  • regulatory compliance risks;
  • opposition to the cannabinoid industry;
  • unpredictable events, such as the COVID-19 outbreak, and associated business disruptions;
  • risks related to the sale of our operations in Colombia;
  • potential delisting resulting in reduced liquidity of our Common Shares; and
  • the other risks described under Part I, Item 1A, "Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (as amended, the "2022 Annual Report") filed with the Securities and Exchange Commission (the "SEC") on March 31, 2023, as amended on April 28, 2023, as well as described from time to time in our other filings with the SEC.

2


Given the foregoing risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements in this Quarterly Report. The forward-looking statements contained in this Quarterly Report are not guarantees of future performance and our actual results of operations and financial condition may differ materially from such forward-looking statements. In addition, even if our results of operations and financial condition are consistent with the forward-looking statements in this Quarterly Report, they may not be predictive of results or developments in future periods.

Any forward-looking statement that we make in this Quarterly Report speaks only as of the date of this Quarterly Report. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements in this Quarterly Report, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report.

3


PART I

Item 1. Financial Statements

Flora Growth Corp.

Table of Contents

Unaudited Condensed Interim Consolidated Financial Statements:   Page
     
Unaudited Condensed Interim Consolidated Statements of Financial Position as of September 30, 2023 and December 31, 2022   5
     
Unaudited Condensed Interim Consolidated Statements of Loss and Comprehensive Loss for the Three and Nine Months Ended September 30, 2023 and 2022   6
     
Unaudited Condensed Interim Consolidated Statements of Changes in Shareholders' Equity (Deficiency) for the Three and Nine Months Ended September 30, 2023 and 2022   7
     
Unaudited Condensed Interim Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022   8
     
Notes to Unaudited Condensed Interim Consolidated Financial Statements   9
 

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:   September 30, 2023     December 31, 2022  
ASSETS            
Current            
Cash $ 4,763   $ 8,935  
Restricted cash   35     -  
Trade and amounts receivable, net of $1,265 allowance ($1,385 at December 31, 2022)   3,543     5,259  
Loans receivable and advances   -     271  
Prepaid expenses and other current assets   957     805  
Indemnification receivables   3,333     3,429  
Inventory   10,637     8,747  
Current assets held for sale   589     3,709  
Total current assets   23,857     31,155  
Non-current            
Property, plant and equipment   900     1,218  
Operating lease right of use assets   936     2,118  
Intangible assets   5,422     17,739  
Goodwill   -     23,372  
Investments   200     730  
Other assets   285     263  
Noncurrent assets held for sale   -     4,392  
Total assets $ 31,600   $ 80,987  
LIABILITIES            
Current            
Trade payables $ 6,706   $ 7,831  
Contingencies   5,398     5,044  
Current portion of debt   1,115     1,086  
Current portion of operating lease liability   972     1,116  
Other accrued liabilities   2,017     1,760  
Current liabilities held for sale   374     610  
Total current liabilities   16,582     17,447  
Non-current            
Non-current operating lease liability   1,030     1,561  
Deferred tax   481     1,712  
Contingent purchase considerations   385     3,547  
Noncurrent liabilities held for sale   -     308  
Total liabilities   18,478     24,575  
SHAREHOLDERS' EQUITY            
Share capital, no par value, unlimited authorized, 8,216 issued and outstanding (6,776 at December 31, 2022)   -     -  
Additional paid-in capital   149,857     150,420  
Accumulated other comprehensive loss   (1,800 )   (2,732 )
Deficit   (133,734 )   (90,865 )
Total Flora Growth Corp. shareholders' equity   14,323     56,823  
Non-controlling interest in subsidiaries   (1,201 )   (411 )
Total shareholders' equity   13,122     56,412  
Total liabilities and shareholders' equity $ 31,600   $ 80,987  

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements. Commitments and contingencies - see Note 16. Going concern - see Note 2.

5


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
September 30,
2023
    For the three
months ended
September 30,
2022
    For the nine
months ended
September 30,
2023
    For the nine
months ended
September 30,
2022
 
Revenue   $ 17,317   $ 9,707   $ 58,096   $ 22,851  
Cost of sales     12,375     5,024     43,848     12,621  
Gross profit     4,942     4,683     14,248     10,230  
Operating expenses                          
Consulting and management fees     2,346     2,778     9,679     6,754  
Professional fees     415     742     1,080     2,447  
General and administrative     340     956     1,376     2,615  
Promotion and communication     1,142     2,145     3,713     6,559  
Travel expenses     77     277     333     769  
Share based compensation     4     162     996     2,951  
Research and development     8     79     37     313  
Operating lease expense     286     332     910     659  
Depreciation and amortization     305     562     2,043     1,612  
Bad debt expense     (14 )   631     33     886  
Asset impairment     -     -     34,941     15,652  
Other expenses (income), net     573     393     2,078     1,203  
Total operating expenses     5,482     9,057     57,219     42,420  
Operating loss     (540 )   (4,374 )   (42,971 )   (32,190 )
Interest expense (income)     16     (5 )   67     (47 )
Foreign exchange loss (gain)     98     128     (78 )   328  
Unrealized (gain) loss from changes in fair value     (1,233 )   2,177     (2,165 )   3,510  
Net income (loss) before income taxes and discontinued operations     579     (6,674 )   (40,795 )   (35,981 )
Income tax recovery     (51 )   -     (1,247 )   -  
Net income (loss) from continuing operations     630     (6,674 )   (39,548 )   (35,981 )
Income (loss) from discontinued operations, net of taxes     492     (737 )   (7,791 )   (3,732 )
Net income (loss) for the period     1,122     (7,411 )   (47,339 )   (39,713 )

Net loss attributable to noncontrolling interest

    (115 )   (30 )   (410 )   (135

)

Net income (loss) attributable to Flora Growth Corp.

  $ 1,237   $ (7,381 ) $ (46,929 ) $ (39,578 )
Basic income (loss) per share from continuing operations   $ 0.09   $ (1.74 ) $ (5.84 ) $ (9.68 )
Diluted income (loss) per share from continuing operations   $ 0.08   $ (1.74 ) $ (5.84 ) $ (9.68 )
Basic income (loss) per share attributable to Flora Growth Corp.   $ 0.18   $ (1.93 ) $ (6.93 ) $ (10.65 )

Diluted income (loss) per share attributable to Flora Growth Corp.

  $ 0.16   $ (1.93 ) $ (6.93 ) $ (10.65 )
Weighted average number of common shares outstanding - basic     6,940     3,831     6,770     3,717  
Weighted average number of common shares outstanding - diluted     7,637     3,831     6,770     3,717  

Other comprehensive income (loss)

                         

Net income (loss) for the period

  $ 1,122   $ (7,411 ) $ (47,339 ) $ (39,713 )

Foreign currency translation, net of income taxes of $nil ($nil in 2022)

    274     1,048     (932 )   1,615  

Comprehensive income (loss) for the period

    848     (8,459 )   (46,407 )   (41,328 )

Comprehensive income (loss) attributable to noncontrolling interests

    (115 )   (30 )   (410 )   (135 )

Comprehensive income (loss) attributable to Flora Growth Corp.

  $ 963   $ (8,429 ) $ (45,997 ) $ (41,193 )

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 nine months ended September 30, 2023                                          
Balance, December 31, 2022   6,776   $ -   $ 150,420   $ (2,732 ) $ (90,865 ) $ (411 ) $ 56,412  
September unit offering   1,369     -     2,738     -     -     -     2,738  
September unit offering issuance costs   -     -     (254 )   -     -     -     (254 )
Common shares issued for other agreements   126     -     542     -     -     -     542  
Options issued   -     -     219     -     -     -     219  
Options forfeited   -     -     (4,335 )   -     4,060     -     (275 )
Restricted stock granted   112     -     1,415     -     -     -     1,415  
Restricted stock cancelled   (167 )   -     (810 )   -     -     -     (810 )
Share issuance costs   -     -     (78 )   -     -     -     (78 )
Derecognition of equity related to Colombia assets   -     -     -     (195 )   -     (380 )   (575 )
Other comprehensive loss -
exchange differences (net of income taxes of $nil)
  -     -     -     1,127     -     -     1,127  
Net loss   -     -     -     -     (46,929 )   (410 )   (47,339 )
Balance, September 30, 2023   8,216   $ -   $ 149,857   $ (1,800 ) $ (133,734 ) $ (1,201 ) $ 13,122  
For the three months ended September 30, 2023                                          
Balance, June 30, 2023   6,859   $ -   $ 150,726   $ (1,526 ) $ (138,266 ) $ (706 ) $ 10,228  
September unit offering   1,369           2,738                       2,738  
September unit offering issuance costs   -     -     (254 )   -     -     -     (254 )
Options issued   -     -     8     -     -     -     8  
Options forfeited   -     -     (3,312 )   -     3,295     -     (17 )
Restricted stock granted   -     -     43     -     -     -     43  
Restricted stock cancelled   (12 )   -     (30 )   -     -     -     (30 )
Share issuance costs   -     -     (62 )   -     -     -     (62 )
Derecognition of equity related to Colombia assets   -     -     -     (195 )   -     (380 )   (575 )
Other comprehensive loss -
exchange differences (net of income taxes of $nil)
  -     -     -     (79 )   -     -     (79 )
Net income (loss)   -           -     -     1,237     (115 )   1,122  
Balance, September 30, 2023   8,216   $ -   $ 149,857   $ (1,800 ) $ (133,734 ) $ (1,201 ) $ 13,122  
For the nine months ended September 30, 2022                                          
Balance, December 31, 2021   3,276   $ -   $ 116,810   $ (1,108 ) $ (38,536 ) $ (225 ) $ 76,941  
Share repurchase   (18 )   -     (255 )   -     -     -     (255 )
Common shares issued for business combinations   475     -     14,697     -     -     -     14,697  
Equity issued for other agreements   40     -     1,553     -     -     -     1,553  
Acquisition of noncontrolling interest   6     -     283     -     (365 )   28     (54 )
Options issued   -     -     3,524     -     -     -     3,524  
Options exercised   28     -     82     -     -     -     82  
Options forfeited   -     -     (1,164 )   -     413     -     (751 )
Restricted units granted   38     -     95     -     -     -     95  
Warrants exercised   24     -     97     -     -     -     97  
Share issuance costs   -     -     (88 )   -     -     -     (88 )
Other comprehensive loss -
exchange differences (net of income taxes of $nil)
  -     -     -     (1,615 )   -     -     (1,615 )
Net loss   -     -     -     -     (39,578 )   (135 )   (39,713 )
Balance, September 30, 2022   3,869   $ -   $ 135,634   $ (2,723 ) $ (78,066 ) $ (332 ) $ 54,513  
For the three months ended September 30, 2022                                          
Balance, June 30, 2022   3,847   $ -   $ 135,892   $ (1,675 ) $ (71,098 ) $ (302 ) $ 62,817  
Share repurchase   (18 )   -     (5 )   -     -     -     (5 )
Options issued   -     -     818     -     -     -     818  
Options exercised   2     -     5     -     -     -     5  
Options forfeited   -     -     (1,164 )   -     413     -     (751 )
Restricted stock granted   38     -     95     -     -     -     95  
Warrants exercised   -     -     6     -     -     -     6  
Share issuance costs   -     -     (13 )   -     -     -     (13 )
Other comprehensive loss -
exchange differences (net of income taxes of $nil)
  -     -     -     (1,048 )   -     -     (1,048 )
Net loss   -     -     -     -     (7,381 )   (30 )   (7,411 )
Balance, September 30, 2022   3,869   $ -   $ 135,634   $ (2,723 ) $ (78,066 ) $ (332 ) $ 54,513  

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 nine months ended
September 30, 2023
    For the nine months ended
September 30, 2022
 
Cash flows from operating activities:            
Net loss $ (47,339 ) $ (39,713 )
Adjustments to net loss:            

Depreciation and amortization

  2,192     1,981  

Share based compensation

  996     3,140  

Asset impairment

  39,645     15,652  

Changes in fair value of investments and liabilities

  (2,165 )   3,510  

Bad debt expense

  598     1,036  

Loss on disposal of Colombia assets

  1,310     -  

Interest expense (income)

  69     (6 )

Interest paid

  (69 )   (145 )

Income tax recovery

  (1,236 )   -  
    (5,999 )   (14,545 )
Net change in non-cash working capital:            

Trade and other receivables

  1,889     909  

Inventory

  (1,553 )   (1,082 )

Prepaid expenses and other assets

  (213 )   203  

Trade payables and accrued liabilities

  (1,389 )   (457 )
Net cash used in operating activities   (7,265 )   (14,972 )
             
Cash flows from financing activities:            

September units issued

  2,738     -  
Equity issue costs   (329 )   (88 )
Exercise of warrants and options   -     179  
Common shares repurchased   -     (255 )
Loan borrowings   168     212  
Loan repayments   (131 )   (146 )
Net cash provided (used) by financing activities   2,446     (98 )
             
Cash flows from investing activities:            
Purchases of property, plant and equipment and intangible assets   (201 )   (949 )
Net cash on disposals   (71 )   -  
Business and asset acquisitions, net of cash acquired   -     (15,238 )
Net cash used in investing activities   (272 )   (16,187 )
             
Effect of exchange rate on changes on cash   954     (459 )
             
Change in cash during the period   (4,137 )   (31,716 )
Cash and restricted cash at beginning of period   8,935     37,616  
Cash included in assets held for sale   -     (408 )
Cash and restricted cash at end of period $ 4,798   $ 5,492  
Supplemental disclosure of non-cash investing and financing activities            
Common shares issued for business combinations $ -   $ 14,917  
Assets acquired for contingent consideration   303     -  
Common shares issued for other agreements   95     1,281  
Operating lease additions to right of use assets   200     2,053  
  Share issuance costs   297        -   

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 nine months ended September 30, 2023 and 2022
(In thousands of United States dollars, except shares and per share amounts)


1. NATURE OF OPERATIONS

Flora Growth Corp. (the "Company" or "Flora") was incorporated under the laws of the Province of Ontario, Canada on March 13, 2019. The Company is manufacturer, distributor and an all-outdoor cultivator of global cannabis and pharmaceutical products and brands, building a connected, design-led collective of plant-based wellness and lifestyle brands. The Company's registered office is located at 365 Bay Street, Suite 800, Toronto, Ontario, M5H 2V1, Canada and our principal place of business in the United States is located at 3406 SW 26th Terrace, Suite C-1, Fort Lauderdale, Florida 3312.

Presentation of comparative financial statements

On June 9, 2023, the Company consolidated its issued and outstanding common shares based on one new common share of the Company for every twenty existing common shares of the Company. All common shares and per share amounts have been restated to give retroactive effect to the share consolidation. See discussion in Note 13.

 

2.        BASIS OF PRESENTATION

These unaudited condensed interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP. The Company believes that the disclosures made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report filed on Form 10-K for the year ended December 31, 2022. These unaudited condensed interim consolidated financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

These unaudited condensed interim consolidated financial statements apply the same accounting policies as those used in the financial statements included in the Company's Annual Report filed on Form 10-K for the year ended December 31, 2022.

These 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 $4.8 million at September 30, 2023, net loss of $47.3 million for the nine months ended September 30, 2023, and an accumulated deficit of $133.7 million at September 30, 2023. Current economic and market conditions have put pressure on the Company's growth plans. The Company's ability to continue as a going concern is dependent on its ability to obtain additional capital. The Company believes that its current level of cash is not sufficient to continue investing in growth, while at the same time meeting its obligations as they become due. These conditions raise substantial doubt regarding the Company's ability to continue as a going concern for a period of at least one year from the date of issuance of these interim condensed consolidated financial statements. To alleviate these conditions, management is currently evaluating various cost reductions and other alternatives and may seek to raise additional funds through the issuance of equity, debt securities, through arrangements with strategic partners, through obtaining credit from financial institutions or otherwise. The actual amount that the Company may be able to raise under these alternatives will depend on market conditions and other factors. As it seeks additional sources of financing, there can be no assurance that such financing would be available to the Company on favorable terms or at all. The Company's ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including but not limited to market and economic conditions, the Company's performance and investor sentiment with respect to it and its industry. 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.

  9  

Flora Growth Corp.
Notes to the unaudited condensed interim consolidated financial statements
For the three and nine months ended September 30, 2023 and 2022

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

Basis of consolidation

These unaudited condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions were eliminated on consolidation. Subsidiaries are entities the Company controls when it is exposed, or has rights, to variable returns from its involvement in the entity and can affect those returns through its power to direct the relevant activities of the entity. Subsidiaries are included in the consolidated financial results of the Company from the date of acquisition up to the date of disposition or loss of control. The Company's subsidiaries and respective ownership percentage have not changed from the year ended December 31, 2022, except as noted below.

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 of its shares in certain Colombian companies and other Flora assets related to its Colombian operations for a purchase price of CAD $0.8 million (USD $0.6 million).

The Company sold all of its shares and assets related to the following Colombian companies and branches:

  • Flora Growth Corp Colombia S.A.S. (formerly Hemp Textiles & Co. S.A.S.)
  • Flora Lab S.A.S. (formerly Grupo Farmaceutico Cronomed S.A.S.)
  • Flora Med S.A.S. (formerly Breeze Laboratory S.A.S.)
  • Labcofarm Laboratorios S.A.S
  • Cosechemos Ya S.A.S.
  • Kasa Wholefoods Company S.A.S.
  • Flora Growth Corp. Sucursal Colombia
  • Flora Beauty LLC Sucursal Colombia

The applicable capital stock of the Colombian entities was transferred to Lisan at the date of closing. All assets underlying this sale were transferred to Lisan on an "as is where is" basis. The results of these subsidiaries are included in discontinued operations in the accompanying unaudited condensed interim consolidated financial statements. See discussion in Note 3.

 

3. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

On July 5, 2023, the Company entered into a Share Purchase Agreement with Lisan Farma Colombia LLC ("Lisan"), a Delaware limited liability company, to sell all its shares in its Colombian related subsidiaries and its Colombian assets for a purchase price of CAD $0.8 million (USD $0.6 million). The sale relates to all of 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. The Company has received proceeds of CAD $0.5 million during the quarter ended September 30, 2023 which completed the sale and transfer of Flora Growth Corp Colombia S.A.S, Flora Lab S.A.S., Flora Med S.A.S., Labcofarm Laboratorios S.A.S., Kasa Wholefoods Company S.A.S., Flora Growth Corp. Sucursal Colombia and Flora Beauty LLC Sucursal Colombia. The Company and Lisan completed the sale of Cosechemos Ya S.A.S on November 1, 2023. Because this occurred after the reporting period, the assets and liabilities of Cosechemos Ya S.A.S remain as held for sale as of September 30, 2023.

The sale enables the Company to concentrate on its core business divisions, which are lifestyle brands in the United States and international pharmaceutical distribution. The sale was part of several strategic changes to cut costs and streamline operations.

The Company has presented the associated assets and liabilities of the Colombian subsidiaries as held for sale. The major classes of assets and liabilities classified as held for sale as of September 30, 2023 and December 31, 2022 were as follows:

    September 30, 2023     December 31, 2022  
Assets held for sale            
    Cash $ -   $ 602  
    Trade and amounts receivable   295     1,592  
    Prepaid expenses and other current assets   13     174  
    Inventory   281     1,341  
Total current assets held for sale   589     3,709  
    Property, plant and equipment   -     3,592  
    Operating lease right of use assets   -     419  
    Intangible assets   -     358  
    Other assets   -     23  
Total noncurrent assets held for sale   -     4,392  
Total assets held for sale $ 589   $ 8,101  
Liabilities held for sale            
    Current portion of operating lease liability $ 69   $ 72  
    Other accrued liabilities   305     538  
Total current liabilities held for sale   374     610  
    Non-current operating lease liability   -     308  
Total liabilities held for sale $ 374   $ 918  

 

  10  

Flora Growth Corp.
Notes to the unaudited condensed interim consolidated financial statements
For the three and nine months ended September 30, 2023 and 2022

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

The following table summarizes the major classes of line items included in income (loss) from discontinued operations, net of tax, for the three and nine months ended September 30, 2023 and 2022:

    For the three
months ended
September 30,
2023
    For the three
months ended
September 30,
2022
    For the nine
months ended
September 30,
2023
    For the nine
months ended
September 30,
2022
 
Revenue $ -   $ 1,058   $ 1,450   $ 2,831  
Cost of sales   -     770     1,123     1,544  
Gross profit from discontinued operations   -     288     327     1,287  
Consulting and management fees   171     459     847     1,726  
Professional fees   -     60     82     451  
General and administrative   -     231     282     1,000  
Promotion and communication   -