Flora Growth(FLGC) - 2023 Q1 - Quarterly Report

Financial Performance - Net sales for the three months ended March 31, 2023, reached $20,107,000, a significant increase from $4,946,000 in the same period of 2022, representing a growth of approximately 305%[209] - The House of Brands segment generated $14,199,000 in net sales for Q1 2023, up from $5,063,000 in Q1 2022, indicating a growth of about 180%[209] - The Commercial and Wholesale segment reported net sales of $7,956,000 for Q1 2023, compared to $4,000 in Q1 2022, reflecting a substantial increase[209] - Revenue for the three months ended March 31, 2023, was $4.9 million, a significant decrease from $20.1 million in the same period in 2022, primarily due to acquisitions and intercompany eliminations[265] - JustCBD contributed $12.1 million in revenue for the three months ended March 31, 2023, compared to $3.5 million in the same period in 2022[265] - FGH contributed $8.0 million in revenue for the three months ended March 31, 2023, with an estimated increase of $13.1 million in revenue if acquired at January 1, 2022[265] - The House of Brands segment generated $14.2 million in revenue for the three months ended March 31, 2023, up from $5.1 million in the same period in 2022[266] - The pharmaceuticals segment reported revenue of $0.4 million for the three months ended March 31, 2023, down from $0.7 million in the same period in 2022, attributed to supply chain issues[267] - The commercial and wholesale segment generated $8.0 million in revenue for the three months ended March 31, 2023, compared to less than $0.1 million in the same period in 2022, driven by the acquisition of FGH[268] Expenses - Travel expenses totaled $0.1 million for the three months ended March 31, 2023, compared to $0.2 million for the same period in 2022, reflecting a decrease of 50%[178] - Share-based compensation expenses decreased to $0.7 million for the three months ended March 31, 2023, down from $1.5 million in the same period of 2022, a reduction of approximately 53.3%[179] - Research and development expenses were less than $0.1 million for the three months ended March 31, 2023, compared to $0.2 million for the same period in 2022, indicating a decrease of 50%[180] - Operating lease expenses increased to $0.4 million for the three months ended March 31, 2023, up from $0.2 million in the same period of 2022, representing a 100% increase[181] - Depreciation and amortization expenses rose to $0.9 million for the three months ended March 31, 2023, compared to $0.5 million for the same period in 2022, an increase of 80%[182] - Operating expenses decreased to $8.6 million in Q1 2023 from $10.3 million in Q1 2022, attributed to reduced promotion, communication, and professional fees[270] - Consulting and management fees rose to $4.0 million in Q1 2023 from $2.4 million in Q1 2022, mainly due to the acquisition of FGH and increased staffing[271][272] - Professional fees dropped to less than $0.1 million in Q1 2023 from $1.2 million in Q1 2022, reflecting efforts to reduce costs and eliminate one-time acquisition expenses[273] - General and administrative expenses fell to $0.5 million in Q1 2023 from $0.9 million in Q1 2022, due to cost-cutting measures[274] - Promotion and communication expenses decreased to $1.3 million in Q1 2023 from $2.5 million in Q1 2022, as part of corporate overhead minimization efforts[275] Assets and Liabilities - As of March 31, 2023, total assets amounted to $77,040,000, down from $80,987,000 as of December 31, 2022, indicating a decrease of about 5%[210] - The total amount claimed against the former entities of FGH currently exceeds the maximum $5.0 million of the indemnification agreement, with an estimated likelihood of loss not exceeding this amount[199] - The company assumed $4.0 million in liabilities from JustCBD, including $0.6 million of lease liabilities[233] - The Company incurred $0.5 million in transaction costs related to the acquisition of FGH in December 2022, with $9.1 million in assumed liabilities[234] Management and Governance - The company appointed Hussein Rakine as the new CEO on April 16, 2023, following the resignation of Luis Merchan, indicating a change in leadership[213][214] - Management concluded that the disclosure controls and procedures were not effective as of March 31, 2023, primarily due to an outstanding material weakness[186] - The company has not adopted any new accounting standards that impacted its financial reporting during the three months ended March 31, 2023[184] Market and Operational Challenges - The company is currently addressing a potential noncompliance issue with Colombian customs, which may result in a reasonably possible loss, although the amount cannot be estimated at this time[215][216] - The company continues to face challenges in achieving full cultivation potential, which impacts its liquidity and operational plans, necessitating additional capital access[231] Growth and Future Expectations - The fair value of contingent purchase consideration from business combinations was $3.5 million as of March 31, 2023, compared to $2.645 million as of December 31, 2022, indicating an increase of approximately 32.3%[202] - The company expects to continue incurring substantial additional annual expenses related to public company regulatory requirements and customary practices[245]