Flora Growth(FLGC) - 2025 Q2 - Quarterly Report

Cautionary Statement Regarding Forward-Looking Statements This section contains standard disclaimers about forward-looking statements, which are based on current expectations and are subject to significant business, economic, and regulatory risks Cautionary Statement Regarding Forward-Looking Statements This section contains standard disclaimers about forward-looking statements, which are based on current expectations and are subject to significant business, economic, and regulatory risks - The report identifies numerous risks that could cause actual results to differ from forward-looking statements[9][11] - Risks include limited operating history, net losses, changes in cannabis laws, going concern uncertainty, product recalls, and challenges in integrating acquired businesses[11] PART I - Financial Information This part presents the unaudited condensed interim consolidated financial statements and management's discussion and analysis for the three and six months ended June 30, 2025, and 2024 Item 1. Financial Statements This section presents the unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2025, and 2024 Consolidated Statements of Financial Position (Balance Sheet) As of June 30, 2025, the company's total assets decreased to $22.7 million from $26.2 million at the end of 2024, mainly due to a significant reduction in cash Consolidated Balance Sheet Highlights (in thousands USD) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash | $1,471 | $6,017 | | Total current assets | $13,197 | $19,763 | | Total assets | $22,667 | $26,227 | | Liabilities & Equity | | | | Total current liabilities | $13,808 | $18,832 | | Total liabilities | $18,644 | $21,717 | | Total shareholders' equity | $4,023 | $4,510 | Consolidated Statements of Loss and Comprehensive Loss (Income Statement) For the second quarter of 2025, the company reported a net loss of $2.4 million, an improvement from a $2.7 million loss in Q2 2024 Key Performance Indicators (in thousands USD) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $14,796 | $15,683 | $26,582 | $33,714 | | Gross Profit | $2,830 | $3,167 | $5,718 | $7,021 | | Operating Loss | $(2,566) | $(3,538) | $(3,543) | $(6,023) | | Net Loss | $(2,412) | $(2,657) | $(3,170) | $(6,031) | | Basic Loss Per Share | $(0.11) | $(0.21) | $(0.16) | $(0.57) | Consolidated Statement of Cash Flows For the first six months of 2025, net cash used in operating activities increased substantially to $5.6 million, compared to $1.6 million in the same period of 2024 Cash Flow Summary for Six Months Ended June 30 (in thousands USD) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(5,616) | $(1,605) | | Net cash provided by financing activities | $1,512 | $3,368 | | Net cash used in investing activities | $(636) | $(33) | | Change in cash during the period | $(4,546) | $1,777 | Notes to Financial Statements The notes provide critical context to the financial statements, including going concern uncertainty, recent acquisitions, and deconsolidation of insolvent subsidiaries - Going Concern: Management has substantial doubt about the company's ability to continue as a going concern for at least one year, citing its $1.5 million cash balance, ongoing net losses, and an accumulated deficit of $161.3 million[29] - Insolvency of Subsidiaries: In March 2025, several Canadian and German subsidiaries filed for insolvency, leading to a pre-tax gain of $1.16 million from deconsolidation[32][35][40] - Business Combination: The company acquired United Beverage Distribution Inc. on February 4, 2025, for $2.9 million in shares and promissory notes, adding $2.4 million in goodwill[48][50] - Subsequent Event - Reverse Stock Split: On July 31, 2025, the company announced a 1-for-39 reverse stock split, effective August 4, 2025, to regain Nasdaq compliance[120] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance, business strategy, and liquidity challenges, highlighting improved net loss but worsened operating cash flow and going concern issues Business Overview Flora Growth is a multi-national cannabis company operating through two core pillars: House of Brands and Commercial & Wholesale - The company's business strategy is built on two pillars: House of Brands and Commercial & Wholesale, allowing access to global markets based on local cannabis regulations[127] - In 2025, the company acquired United Beverage Distribution Inc., a distributor of cannabis-infused drinks, to be integrated into the House of Brands segment[132] Results of Operations This subsection provides a detailed comparison of financial performance for the three and six-month periods ending June 30, 2025 and 2024 Revenue Contribution by Key Brands - Q2 (in millions USD) | Brand/Segment | Q2 2025 Revenue | Q2 2024 Revenue | | :--- | :--- | :--- | | Phatebo | $9.7 | $9.7 | | JustCBD | $3.2 | $4.4 | | Vessel | $1.0 | $1.4 | | AV | $0.5 | $0.2 | | TruHC & United | $0.4 | $0.0 | Revenue Contribution by Key Brands - H1 (in millions USD) | Brand/Segment | H1 2025 Revenue | H1 2024 Revenue | | :--- | :--- | :--- | | Phatebo | $16.6 | $21.0 | | JustCBD | $6.7 | $9.8 | | Vessel | $2.1 | $2.7 | | AV | $0.6 | $0.2 | | TruHC & United | $0.6 | $0.0 | - The net loss for H1 2025 decreased to $3.2 million from $6.0 million in H1 2024, primarily due to a $1.2 million gain on disposal of insolvent subsidiaries and a $2.6 million reduction in operating expenses[201] EBITDA and Adjusted EBITDA The company uses non-GAAP measures EBITDA and Adjusted EBITDA to assess operating performance, showing an improved Adjusted EBITDA loss for both periods in 2025 Adjusted EBITDA Reconciliation Summary (in thousands USD) | Period | Net Loss | Adjusted EBITDA Loss | | :--- | :--- | :--- | | Six Months Ended June 30, 2025 | $(3,170) | $(2,545) | | Six Months Ended June 30, 2024 | $(6,031) | $(4,323) | | Three Months Ended June 30, 2025 | $(2,412) | $(2,138) | | Three Months Ended June 30, 2024 | $(2,657) | $(2,820) | Liquidity and Capital Resources The company's liquidity position is critical, with cash falling to $1.5 million as of June 30, 2025, raising substantial doubt about its ability to continue as a going concern - As of June 30, 2025, the company had only $1.5 million in cash and negative working capital of ($0.6) million, raising substantial doubt about its ability to continue as a going concern[206][214] - Net cash used in operating activities for H1 2025 was $5.6 million, a significant increase from $1.6 million in H1 2024[211] - The company has a €2.4 million credit facility in Germany with €2.3 million outstanding, and $2.2 million in promissory notes from the United acquisition[216][217] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that this item is not applicable - Not applicable[225] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of the evaluation date, June 30, 2025[226] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[227] PART II - Other Information This part includes disclosures on legal proceedings, new risk factors related to digital assets, unregistered sales of equity securities, and other miscellaneous information Item 1. Legal Proceedings This section states there have been no material changes to the legal proceedings described in the 2024 Annual Report, except for those disclosed in Note 16 of the financial statements - No material changes to legal proceedings are reported, other than those detailed in Note 16 of the financial statements[228] Item 1A. Risk Factors The company has added new risk factors related to its recent investment in digital assets, including price volatility and security breaches - A new risk factor is the potential impact of digital asset price volatility on the company's financial results and common share price[230][232] - The company identifies the risk of losing some or all of its digital assets due to security breaches or cyberattacks, which could materially harm its financial condition[233] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On May 2, 2025, the company completed a private placement, selling common shares and pre-funded warrants, generating $1.1 million in net proceeds, primarily used to purchase digital assets - The company raised approximately $1.1 million in net proceeds from a private placement of common shares and pre-funded warrants on May 2, 2025[234] - $1.0 million of the proceeds were immediately invested into digital assets, including Solana, Ethereum, Sui, and Ripple[234] Item 3. Defaults Upon Senior Securities The company reports that there were no defaults upon senior securities during the period - None[235] Item 4. Mine Safety Disclosures The company states that this item is not applicable - Not applicable[236] Item 5. Other Information During the three months ended June 30, 2025, none of the company's directors or executive officers adopted or terminated a Rule 10b5-1 trading plan or any other non-Rule 10b5-1 trading arrangement - No directors or executive officers adopted or terminated a Rule 10b5-1 trading plan during the quarter[237] Item 6. Exhibits This section lists all exhibits filed with the quarterly report, including corporate documents, agreements, and certifications by the Principal Executive Officer and Principal Financial Officer - Filed exhibits include key corporate documents, warrant forms, the 2022 Incentive Compensation Plan, and recent securities purchase agreements[238] - Certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act are included as exhibits[238][240] Signatures This section confirms the quarterly report was duly signed and authorized on August 1, 2025, by the Chief Executive Officer and Chief Financial Officer Signatures The quarterly report was duly signed and authorized on August 1, 2025, by Clifford Starke, Chief Executive Officer, and Dany Vaiman, Chief Financial Officer - The report was signed on August 1, 2025, by the company's CEO and CFO[245]