Company Quick10K Filing
Quick10K
Tilray
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$26.74 75 $2,006
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
8-K 2019-09-10 Enter Agreement, Exhibits
8-K 2019-09-09 Enter Agreement, Other Events, Exhibits
8-K 2019-08-28 Regulation FD, Other Events, Exhibits
8-K 2019-08-13 Earnings, Exhibits
8-K 2019-06-10 Other Events, Exhibits
8-K 2019-05-30 Shareholder Vote
8-K 2019-05-14 Earnings, Exhibits
8-K 2019-03-18 Earnings, Exhibits
8-K 2019-02-19 Enter Agreement, Sale of Shares, Exhibits
8-K 2019-02-15 M&A, Sale of Shares, Exhibits
8-K 2019-01-21 Enter Agreement, Sale of Shares, Exhibits
8-K 2019-01-21 Enter Agreement, Sale of Shares, Exhibits
8-K 2019-01-14 Enter Agreement, Sale of Shares, Exhibits
8-K 2018-12-18 Other Events, Exhibits
8-K 2018-11-13 Earnings, Exhibits
8-K 2018-10-22 Off-BS Arrangement, Sale of Shares
8-K 2018-10-04 Enter Agreement, Off-BS Arrangement, Sale of Shares, Other Events, Exhibits
8-K 2018-10-03 Earnings, Regulation FD, Exhibits
8-K 2018-08-28 Earnings, Exhibits
8-K 2018-07-23 Amend Bylaw, Exhibits
ASH Ashland Global Holdings 4,475
RAVN Raven Industries 1,052
HWKN Hawkins 467
CDXC Chromadex 214
FOMX Foamix Pharmaceuticals 164
NAII Natural Alternatives International 74
MTEX Mannatech 49
OBCI Ocean Bio Chem 32
CTIB CTI Industries 16
FFHL Fuwei Films 12
TLRY 2019-06-30
Part I-Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part Ii-Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits.
EX-10.1 tlry-ex101_508.htm
EX-31.1 tlry-ex311_8.htm
EX-31.2 tlry-ex312_6.htm
EX-32.1 tlry-ex321_9.htm
EX-32.2 tlry-ex322_7.htm

Tilray Earnings 2019-06-30

TLRY 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tlry-10q_20190630.htm 10-Q tlry-10q_20190630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 June 30, 2019

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: 001-38594

 

Tilray, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

82-4310622

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1100 Maughan Road

Nanaimo, BC, Canada, V9X IJ2

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (844) 845-7291

 

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class 2 Common Stock, $0.0001 par value per share

 

TLRY

 

The Nasdaq Global Select 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 Exchange Act). Yes No

 

As of August 13, 2019, the registrant had 16,666,667 shares of Class 1 Common Stock, $0.0001 par value per share, and 80,978,296 shares of Class 2 Common Stock, $0.0001 par value per share, outstanding.

 

 

 


Table of Contents

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

1

Item 1.

 

Condensed Consolidated Financial Statements (Unaudited)

 

1

 

 

Condensed Consolidated Balance Sheets

 

1

 

 

Condensed Consolidated Statements of Net Loss and Comprehensive Loss

 

2

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

3

 

 

Condensed Consolidated Statements of Cash Flows

 

4

 

 

Notes to Condensed Consolidated Financial Statements

 

5

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

30

Item 4.

 

Controls and Procedures

 

30

PART II.

 

OTHER INFORMATION

 

31

Item 1.

 

Legal Proceedings

 

31

Item 1A.

 

Risk Factors

 

31

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

54

Item 6.

 

Exhibits

 

55

Signatures

 

56

 

 

 

 

 

i


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

TILRAY, INC.

Condensed Consolidated Balance Sheets

(in thousands of U.S. dollars, except for share and par value data, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

184,551

 

 

$

487,255

 

Short-term investments

 

 

36,323

 

 

 

30,335

 

Accounts receivable, net of allowance for doubtful accounts of $1,854 and $292,

   respectively

 

 

24,612

 

 

 

16,525

 

Other receivables

 

 

1,195

 

 

 

969

 

Inventory

 

 

75,317

 

 

 

16,211

 

Prepaid expenses and other current assets

 

 

36,633

 

 

 

3,007

 

Total current assets

 

 

358,631

 

 

 

554,302

 

Property and equipment, net

 

 

147,558

 

 

 

80,214

 

Intangible assets, net

 

 

331,983

 

 

 

4,486

 

Goodwill

 

 

154,954

 

 

 

 

Investments

 

 

23,195

 

 

 

16,911

 

Deposits and other assets

 

 

7,810

 

 

 

754

 

Total assets

 

$

1,024,131

 

 

$

656,667

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

24,368

 

 

$

10,649

 

Accrued expenses and other current liabilities

 

 

151,288

 

 

 

14,818

 

Accrued obligations under capital lease

 

 

252

 

 

 

470

 

Total current liabilities

 

 

175,908

 

 

 

25,937

 

Accrued obligations under capital lease

 

 

9,032

 

 

 

8,286

 

Deferred tax liability

 

 

53,624

 

 

 

4,424

 

Convertible Notes, net of issuance cost

 

 

425,400

 

 

 

420,367

 

Total liabilities

 

$

663,964

 

 

$

459,014

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Class 1 common stock ($0.0001 par value, 250,000,000 shares authorized;

   16,666,667 shares issued and outstanding)

 

 

2

 

 

 

2

 

Class 2 common stock ($0.0001 par value; 500,000,000 shares authorized;

   80,690,864 and 76,504,200 shares issued and outstanding, respectively)

 

 

8

 

 

 

8

 

Additional paid-in capital

 

 

526,830

 

 

 

302,057

 

Accumulated other comprehensive income

 

 

6,858

 

 

 

3,763

 

Accumulated deficit

 

 

(173,531

)

 

 

(108,177

)

Total stockholders’ equity

 

 

360,167

 

 

 

197,653

 

Total liabilities and stockholders’ equity

 

$

1,024,131

 

 

$

656,667

 

 

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

1


TILRAY, INC.

Condensed Consolidated Statements of Net Loss and Comprehensive Loss

(in thousands of U.S. dollars, except for share and per share data, unaudited)

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

$

45,904

 

 

$

9,744

 

 

$

68,942

 

 

$

17,552

 

Cost of sales

 

 

33,631

 

 

 

5,567

 

 

 

51,284

 

 

 

9,479

 

Gross profit

 

 

12,273

 

 

 

4,177

 

 

 

17,658

 

 

 

8,073

 

General and administrative expenses

 

 

16,465

 

 

 

5,342

 

 

 

29,262

 

 

 

9,487

 

Sales and marketing expenses

 

 

14,366

 

 

 

3,305

 

 

 

22,187

 

 

 

5,568

 

Depreciation and amortization expense

 

 

2,385

 

 

 

281

 

 

 

4,248

 

 

 

503

 

Stock-based compensation expense

 

 

7,585

 

 

 

5,601

 

 

 

12,891

 

 

 

5,632

 

Research and development expenses

 

 

1,528

 

 

 

639

 

 

 

2,576

 

 

 

1,614

 

Acquisition and integration expenses

 

 

2,464

 

 

 

 

 

 

6,888

 

 

 

 

Operating loss

 

 

(32,520

)

 

 

(10,991

)

 

 

(60,394

)

 

 

(14,731

)

Foreign exchange (gain) loss, net

 

 

(1,611

)

 

 

1,358

 

 

 

(1,432

)

 

 

2,504

 

Interest expense, net

 

 

8,586

 

 

 

497

 

 

 

17,331

 

 

 

913

 

Finance income from ABG Profit Participation Arrangement

 

 

(212

)

 

 

 

 

 

(347

)

 

 

 

Other income, net

 

 

(2,035

)

 

 

(76

)

 

 

(4,380

)

 

 

(197

)

Loss before income taxes

 

 

(37,248

)

 

 

(12,770

)

 

 

(71,566

)

 

 

(17,951

)

Deferred income tax recovery

 

 

(2,642

)

 

 

 

 

 

(6,419

)

 

 

 

Current income tax expense

 

 

447

 

 

 

63

 

 

 

207

 

 

 

63

 

Net loss

 

$

(35,053

)

 

$

(12,833

)

 

$

(65,354

)

 

$

(18,014

)

Net loss per share - basic and diluted

 

 

(0.36

)

 

 

(0.17

)

 

 

(0.68

)

 

 

(0.24

)

Weighted average shares used in computation of net loss per

   share - basic and diluted

 

 

97,231,839

 

 

 

75,000,000

 

 

 

96,037,142

 

 

 

75,000,000

 

Net loss

 

$

(35,053

)

 

$

(12,833

)

 

$

(65,354

)

 

$

(18,014

)

Foreign currency translation gain (loss)

 

 

2,924

 

 

 

(86

)

 

 

2,449

 

 

 

(87

)

Unrealized (loss) gain on cash equivalents and investments

 

 

(762

)

 

 

 

 

 

646

 

 

 

 

Other comprehensive income (loss)

 

 

2,162

 

 

 

(86

)

 

 

3,095

 

 

 

(87

)

Comprehensive loss

 

$

(32,891

)

 

$

(12,919

)

 

$

(62,259

)

 

$

(18,101

)

 

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

 

 

2


TILRAY, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands of U.S. dollars, except for share data, unaudited)

 

 

 

Convertible preferred

shares

 

 

Common stock

 

 

Additional

 

 

Accumulated

other

 

 

 

 

 

 

Total

 

 

 

Number of

shares

 

 

Amount

 

 

Number of

shares

 

 

Amount

 

 

paid-in

capital

 

 

comprehensive

income

 

 

Accumulated

deficit

 

 

equity

(deficit)

 

Balance at December 31, 2017

 

 

 

 

$

 

 

 

 

 

$

 

 

$

31,736

 

 

$

3,866

 

 

$

(40,454

)

 

$

(4,852

)

Shares issued for convertible preferred

   stock, net of issuance costs

 

 

7,794,042

 

 

 

1

 

 

 

 

 

 

 

 

 

52,639

 

 

 

 

 

 

 

 

 

52,640

 

Shares issued for common stock,

   net of issuance costs

 

 

 

 

 

 

 

 

75,000,000

 

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

8

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31

 

 

 

 

 

 

 

 

 

31

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,181

)

 

 

(5,181

)

Balance at March 31, 2018

 

 

7,794,042

 

 

$

1

 

 

 

75,000,000

 

 

$

8

 

 

$

84,406

 

 

$

3,865

 

 

$

(45,635

)

 

$

42,645

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,601

 

 

 

 

 

 

 

 

 

5,601

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(86

)

 

 

 

 

 

(86

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,833

)

 

 

(12,833

)

Balance at June 30, 2018

 

 

7,794,042

 

 

$

1

 

 

 

75,000,000

 

 

$

8

 

 

$

90,007

 

 

$

3,779

 

 

$

(58,468

)

 

$

35,327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

 

 

 

$

 

 

 

93,170,867

 

 

$

10

 

 

$

302,057

 

 

$

3,763

 

 

$

(108,177

)

 

$

197,653

 

Shares issued for Natura acquisition

 

 

 

 

 

 

 

 

180,332

 

 

 

 

 

 

15,100

 

 

 

 

 

 

 

 

 

15,100

 

Shares issued for Manitoba Harvest

   acquisition

 

 

 

 

 

 

 

 

1,209,946

 

 

 

 

 

 

96,844

 

 

 

 

 

 

 

 

 

96,844

 

Shares issued for ABG Profit Participation

   Arrangement

 

 

 

 

 

 

 

 

1,680,214

 

 

 

 

 

 

125,097

 

 

 

 

 

 

 

 

 

125,097

 

Receivable for ABG Profit Participation

   Arrangement, net of finance income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,292

)

 

 

 

 

 

 

 

 

(30,292

)

Shares issued under stock-based

   compensation plans

 

 

 

 

 

 

 

 

545,000

 

 

 

 

 

 

931

 

 

 

 

 

 

 

 

 

931

 

Shares issued for employee compensation

 

 

 

 

 

 

 

 

11,868

 

 

 

 

 

 

649

 

 

 

 

 

 

 

 

 

649

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,306

 

 

 

 

 

 

 

 

 

5,306

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

933

 

 

 

 

 

 

933

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,301

)

 

 

(30,301

)

Balance at March 31, 2019

 

 

 

 

 

 

 

 

96,798,227

 

 

 

10

 

 

 

515,692

 

 

 

4,696

 

 

 

(138,478

)

 

 

381,920

 

Shares issued under stock-based

   compensation plans

 

 

 

 

 

 

 

 

530,943

 

 

 

 

 

 

3,483

 

 

 

 

 

 

 

 

 

3,483

 

Shares issued for investment acquisition

 

 

 

 

 

 

 

 

28,361

 

 

 

 

 

 

70

 

 

 

 

 

 

 

 

 

70

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,585

 

 

 

 

 

 

 

 

 

7,585

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,162

 

 

 

 

 

 

2,162

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35,053

)

 

 

(35,053

)

Balance at June 30, 2019

 

 

 

 

$

 

 

 

97,357,531

 

 

$

10

 

 

$

526,830

 

 

$

6,858

 

 

$

(173,531

)

 

$

360,167

 

 

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

 

3


TILRAY, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands of U.S. dollars, unaudited)

 

 

 

Six months ended June 30,

 

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(65,354

)

 

$

(18,014

)

Adjusted for the following items:

 

 

 

 

 

 

 

 

Foreign currency (gain) loss

 

 

(88

)

 

 

2,450

 

Provision for doubtful accounts

 

 

795

 

 

 

 

Inventory write-downs

 

 

525

 

 

 

703

 

Depreciation and amortization expense

 

 

5,755

 

 

 

1,148

 

Stock-based compensation expense

 

 

12,891

 

 

 

5,632

 

Non-cash interest expense

 

 

141

 

 

 

509

 

Loss (gain) on disposal of property and equipment, net

 

 

112

 

 

 

(2

)

Deferred taxes

 

 

(6,419

)

 

 

 

Amortization of discount on Convertible Notes

 

 

5,033

 

 

 

 

Changes in non-cash working capital:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,993

)

 

 

(840

)

Other receivables

 

 

(226

)

 

 

(2,701

)

Inventory

 

 

(38,729

)

 

 

(428

)

Prepaid expenses and other current assets

 

 

(31,963

)

 

 

(1,033

)

Accounts payable

 

 

692

 

 

 

8,019

 

Due to related parties

 

 

(852

)

 

 

 

Accrued expenses and other current liabilities

 

 

9,453

 

 

 

1,652

 

Net cash used in operating activities

 

 

(110,227

)

 

 

(2,905

)

Investing activities

 

 

 

 

 

 

 

 

Acquisition of Manitoba Harvest, net of cash acquired

 

 

(109,331

)

 

 

 

Acquisition of Natura, net of cash acquired

 

 

(15,083

)

 

 

 

Investment in ABG Profit Participation Arrangement

 

 

(33,333

)

 

 

 

Investment in joint venture with AB InBev

 

 

(6,134

)

 

 

 

Change in deposits and other assets

 

 

314

 

 

 

(23

)

Purchases of short-term and non-current investments

 

 

(8,380

)

 

 

(29,394

)

Proceeds from sale and maturities of short-term investments

 

 

 

 

 

29,393

 

Purchases of property and equipment

 

 

(26,263

)

 

 

(28,237

)

Disposals of property and equipment

 

 

 

 

 

11

 

Purchases of intangible assets

 

 

(367

)

 

 

(703

)

Net cash used in investing activities

 

 

(198,577

)

 

 

(28,953

)

Financing activities

 

 

 

 

 

 

 

 

Advances under Privateer debt and construction facilities

 

 

 

 

 

3,810

 

Minimum lease payments under capital lease

 

 

(377

)

 

 

(339

)

Proceeds from ABG Profit Participation Arrangement

 

 

1,667

 

 

 

 

Proceeds from exercise of stock options

 

 

4,414

 

 

 

 

Proceeds from issuance of convertible preferred stock, net

 

 

 

 

 

52,557

 

Net cash provided by financing activities

 

 

5,704

 

 

 

56,028

 

Effect of foreign currency translation on cash and cash equivalents

 

 

396

 

 

 

(1,162

)

Cash and cash equivalents

 

 

 

 

 

 

 

 

(Decrease) increase in cash and cash equivalents

 

 

(302,704

)

 

 

23,008

 

Cash and cash equivalents, beginning of period

 

 

487,255

 

 

 

2,323

 

Cash and cash equivalents, end of period

 

$

184,551

 

 

$

25,331

 

Supplemental Disclosure for Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

11,779

 

 

$

573

 

Non-cash investing activities

 

 

 

 

 

 

 

 

Acquisition of Manitoba Harvest

 

$

195,407

 

 

$

 

Acquisition of Natura

 

$

38,980

 

 

$

 

Investment in ABG Profit Participation Arrangement, net of receivable

 

$

94,805

 

 

$

 

Acquisition of investments

 

$

70

 

 

$

 

 

 

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

4


Tilray, Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except for shares and per share amounts, unaudited)

1.

Summary of Significant Accounting Policies

Basis of presentation

The accompanying unaudited condensed consolidated financial statements (the “financial statements”) reflect the accounts of Tilray, Inc. and its wholly owned subsidiaries (collectively “Tilray”, the “Company”, “we”, “our”, or “us”). The financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, these financial statements do not include all the information and footnotes required for annual financial statements and should be read in conjunction with the audited consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2018 (the “Annual Financial Statements”).

These financial statements reflect all adjustments, consisting solely of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the Company’s financial position and results of operations. The results of operations for the three and six months ended June 30, 2019 and 2018 are not necessarily indicative of results that can be expected for the full year.

The Condensed Consolidated Statement of Net Loss and Comprehensive Loss for the three and six months ended June 30, 2018 were reclassified to conform to the current year’s presentation. Specifically, depreciation and amortization expense as well as acquisition and integration expenses, which were formerly presented as part of general and administrative expenses, are now presented separately.

Other than as described below, there have been no changes to our significant accounting policies described in our Annual Financial Statements that had a material impact on our financial statements and related notes.

Emerging growth company status

The Company is an emerging growth company under the JOBS Act and has elected to take advantage of the extended transition period for complying with new or revised accounting standards applicable to public companies. Because the market value of our Class 2 common stock held by non-affiliates exceeded $700 million as of June 30, 2019, we will be deemed a large accelerated filer under the Exchange Act and will lose emerging growth company status as of December 31, 2019.

Business combinations and goodwill

The Company accounts for business combinations using the acquisition method in accordance with ASC 805 “Business Combinations,” which requires recognition of assets acquired and liabilities assumed, including contingent assets and liabilities, at their respective fair values on the date of acquisition. Any excess of the purchase consideration over the net fair value of tangible and identified intangible assets acquired less liabilities assumed is recorded as goodwill. The costs of business acquisitions, including fees for accounting, legal, professional consulting and valuation specialists, are expensed as incurred. Purchase price allocations may be preliminary and, during the measurement period not to exceed one year from the date of acquisition, changes in assumptions and estimates that result in adjustments to the fair value of assets acquired and liabilities assumed are recorded in the period the adjustments are determined.

For business combinations achieved in stages, the Company’s previously held interest in the acquiree is remeasured at its acquisition date fair value, with the resulting gain or loss recorded in the Consolidated Statements of Net Loss and Comprehensive Loss. For a pre-existing relationship between the Company and acquiree that is not extinguished on the business combination, such a relationship is considered effectively settled as part of the business combination even if it is not legally cancelled. At the acquisition date, it becomes an intercompany relationship and is eliminated upon consolidation.

The estimated fair value of acquired assets and assumed liabilities are determined primarily by using a discounted cash flow approach, with estimated cash flows discounted at a rate that the Company believes a market participant would determine to be commensurate with the inherent risks associated with the asset and related estimated cash flow streams. Contingent consideration in a business combination is remeasured at fair value each reporting period until the contingency is resolved and any change in the fair value from either the passage of time or events occurring after the acquisition date, is recorded within other (income) expense, net on the Consolidated Statements of Net Loss and Comprehensive Loss.

5


Intangible assets

The Company records intangible assets acquired at cost, net of accumulated amortization and accumulated impairment losses, if any. Cost is measured based on the fair values of cash consideration paid and equity interests issued. The cost of an intangible asset acquired in a business combination is its acquisition date fair value.

Amortization of definite life intangible assets is calculated on a straight-line basis over the estimated useful lives of the assets as follows:

 

Customer relationships

 

14 to 16 years

Developed technology

 

10 years

Website

 

3 years

Supply contract

 

3 years

Licenses

 

2 years

 

The Company has rights under the ABG Profit Participation Arrangement, trademarks and a cultivation license with indefinite life. Intangible assets that are determined to have an indefinite life are not amortized, but tested for impairment annually or more frequently when indicators of impairment exist. If the carrying value of an individual indefinite-lived intangible asset exceeds its fair value, such individual indefinite-life intangible asset is impaired by the amount of the excess.

Equity method investments

Investments in entities over which the Company has significant influence but not a controlling interest are accounted for using the equity method, with the Company’s share of earnings or losses reported in (gain) loss on equity method investments on the Consolidated Statements of Net Loss and Comprehensive Loss. The equity method investment is recorded at cost, plus the Company’s share of undistributed earnings or losses.

The Company assesses investment in equity method investments if there is reason to believe an impairment may have occurred including, but not limited to, ongoing operating losses, projected decreases in earnings, increases in the weighted-average cost of capital, or significant business disruptions. The significant assumptions used to estimate fair value include revenue growth and profitability, capital spending, depreciation and taxes, foreign currency exchange rates, and a discount rate. By their nature, these projections and assumptions are uncertain. If it is determined that the current fair value of an investment is less than the carrying value of the investment, the Company will assess if the shortfall is of a temporary or permanent nature and write down the investment to its fair value if it is concluded the impairment is other than temporary.

Stock-based payments

Fully vested, non-forfeitable equity instruments issued to parties other than employees are measured on the date they are issued where there is no specific performance required by the grantee to retain those equity instruments. Stock-based payment transactions with non-employees are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Where fully vested, non-forfeitable equity instruments are granted to parties other than employees in exchange for notes or financing receivable, the note or receivable is presented in additional paid-in capital on the Consolidated Balance Sheets.

Impairment of goodwill and indefinite life intangible assets

Goodwill and indefinite life intangible assets are tested for impairment annually, or more frequently when events or circumstances indicate that impairment may have occurred. As part of the impairment evaluation, the Company may elect to perform an assessment of qualitative factors. If this qualitative assessment indicates that it is more likely than not that the fair value of the indefinite-lived intangible asset or the reporting unit (for goodwill) is less than its carrying value, a quantitative impairment test to compare the fair value to the carrying value and record an impairment charge if the carrying value exceeds the fair value is conducted.

Significant estimates and judgments

The preparation of the Company’s financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of revenue, expenses, assets, liabilities, accompanying disclosures and the disclosure of contingent liabilities. These estimates and judgments are subject to change based on experience and new information. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amounts of assets or liabilities affecting future periods. Estimates and judgments are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively. Financial statement areas that require significant estimates and judgments are as follows:

6


Business combinations – The Company uses judgment in applying the acquisition method of accounting for business combinations and estimates to value identifiable assets and liabilities at the acquisition date. Estimates are used to determine cash flow projections, including the period of future benefit, and future growth and discount rates, among other factors. The values allocated to the acquired assets and liabilities assumed affect the amount of goodwill recorded on acquisition. Fair value is typically estimated using the present value of future discounted cash flows, an income approach. Significant estimates in the discounted cash flow model primarily include the discount rate, rates of future revenue growth and profitability of the acquired business, and working capital effects. The discount rate considers the relevant risk associated with business-specific characteristics and the uncertainty related to the ability to achieve the projected cash flows. These estimates and the resulting valuations require significant judgment.

Contingent consideration – Contingent consideration is subject to measurement uncertainty as the financial impact will only be confirmed by the outcome of a future event. The assessment of contingent consideration involves a significant amount of judgment, including determining a reliable estimate of the amount of cash outflow required to settle the obligation based on significant unobservable inputs as well as estimates around the probability and timing of satisfying the future events on which the contingent consideration is based.

Asset impairment – Asset impairment tests require the allocation of assets to asset groups, which requires significant judgment and interpretation with respect to the integration between the assets and shared resources. Asset impairment tests require the determination of whether there is an indication of impairment. The assessment of whether an indication of impairment exists is performed at the end of each reporting period and requires the application of judgment, historical experience, and external and internal sources of information.

Stock-based payments – Stock-based payment transactions are measured and recognized based on estimated fair value, which requires judgment in determining the appropriate valuation model and assumptions, including discount for shares not registered with the Securities Exchange Commission (“SEC”) subject to transfer restrictions.

Imputed interest for loans receivable – In connection with the loans obtained as part of the ABG Profit Participation Arrangement, judgment is required to estimate the prevailing market interest rate at each time a loan is issued.

New accounting pronouncements not yet adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), a new standard on revenue recognition. Further, the FASB issued a number of additional ASUs regarding the new revenue recognition standard. The new standard, as amended, will supersede existing revenue recognition guidance and apply to all entities that enter into contracts to provide goods or services to customers. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date, which amends ASU 2014-09 to defer the effective date by one year. For public companies, the new standard is effective for annual reporting periods beginning after December 31, 2017, including interim periods within that reporting period. For all other entities, including emerging growth companies, this standard is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is evaluating the impact on the financial statements and expects to implement the provisions of ASU 2014-09 for the annual financial statements for the year ended December 31, 2019.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities, which requires all investments in equity securities with readily determinable fair value to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). ASU 2016-01 is intended to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information and removes the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet. For public companies, the new standard is effective for annual periods beginning after December 15, 2017, including interim periods within the fiscal year. For all other entities, including emerging growth companies, ASU 2016-01 is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The Company is evaluating the impact on the financial statements and expects to implement the provisions of ASU 2016-01 for the annual financial statements for the year ended December 31, 2019.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the current accounting for leases and while retaining two distinct types of leases, finance and operating, (1) requires lessees to record a right of use asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (2) eliminates most real estate specific lease provisions, and (3) aligns many of the underlying lessor model principles with those in the new revenue standard. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. For public companies, the new standard is effective for annual and interim periods in fiscal years beginning after December 15, 2018. For all other entities, including emerging growth companies, this standard is effective for annual reporting periods beginning after December 15, 2019, and interim periods within fiscal years beginning after December 2020. Earlier application is permitted. The Company is evaluating the impact on the financial statements and expects to implement the provisions of ASU 2016-02 for the annual financial statements for the year ended December 31, 2019.

7


In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Adoption of ASU 2016-13 will require financial institutions and other organizations to use forward-looking information to better formulate their credit loss estimates. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. This update will be effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. The Company is evaluating the impact on the financial statements and expects to implement the provisions of ASU 2016-13 for the annual financial statements for the year ended December 31, 2021.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820). ASU 2018-13 adds, modifies, and removes certain fair value measurement disclosure requirements. ASU 2018-13 is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact on the financial statements and expects to implement the provisions of ASU 2018-13 as of January 1, 2020.

 

2.

Investments

The classification of investment in securities reported in long-term investments on the Condensed Consolidated Balance Sheets is summarized as follows:

 

 

 

June 30, 2019

 

 

December 31, 2018

 

Investment in securities under available-for-sale method

 

$

4,799

 

 

$

1,845

 

Investment in securities under the cost method

 

 

12,262

 

 

 

15,066

 

Investment in joint venture under the equity method

 

 

6,134

 

 

 

 

Total investment in securities

 

$

23,195

 

 

$

16,911

 

 

As of June 30, 2019, total unrealized loss recognized in accumulated other comprehensive income related to