IM Cannabis (IMCC) - 2024 Q1 - Quarterly Report

Interim Condensed Consolidated Financial Statements Interim Condensed Consolidated Statements of Financial Position As of March 31, 2024, total assets decreased to $41,109 thousand from $48,813 thousand at year-end 2023, total liabilities to $32,765 thousand, and total equity to $8,344 thousand, resulting in a $10,518 thousand working capital deficit Consolidated Statement of Financial Position (in thousands CAD) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $19,967 | $24,265 | | Total Non-Current Assets | $21,142 | $24,548 | | Total Assets | $41,109 | $48,813 | | Total Current Liabilities | $30,485 | $32,808 | | Total Non-Current Liabilities | $2,280 | $2,305 | | Total Liabilities | $32,765 | $35,113 | | Total Equity | $8,344 | $13,700 | - The company's working capital (Current Assets - Current Liabilities) as of March 31, 2024, was negative, indicating a deficit of $10,518 thousand[29] Interim Condensed Consolidated Statements of Profit or Loss and Other Comprehensive Income For Q1 2024, revenues slightly decreased to $12,063 thousand, gross profit sharply declined to $1,779 thousand, and the net loss attributable to equity holders significantly widened to $5,623 thousand, resulting in a $0.42 loss per share Statement of Profit or Loss Highlights (in thousands CAD) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenues | $12,063 | $12,529 | | Gross Profit | $1,779 | $2,904 | | Total Operating Expenses | $7,409 | $6,521 | | Operating Loss | ($5,630) | ($3,617) | | Net Loss | ($6,020) | ($866) | | Net Loss attributable to Equity Holders | ($5,623) | ($600) | Loss Per Share (in CAD) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Basic and Diluted Loss Per Share | ($0.42) | ($0.05) | - Other operating expenses of $2,750 thousand were recorded in Q1 2024, which were not present in the prior year period, primarily related to a goodwill impairment[8][101] Interim Condensed Consolidated Statements of Changes in Equity Total equity decreased from $13,700 thousand at January 1, 2024, to $8,344 thousand by March 31, 2024, primarily due to a $6,020 thousand net loss, partially offset by other comprehensive income Equity Reconciliation for Q1 2024 (in thousands CAD) | Description | Amount | | :--- | :--- | | Balance as of January 1, 2024 | $13,700 | | Net loss | ($6,020) | | Total other comprehensive income | $1,362 | | Classification | ($730) | | Share-based compensation | $32 | | Balance as of March 31, 2024 | $8,344 | Interim Condensed Consolidated Statements of Cash Flows In Q1 2024, net cash used in operating activities significantly improved to ($629) thousand, while financing activities used ($852) thousand, leading to a ($765) thousand decrease in cash and cash equivalents, ending the period at $1,048 thousand Consolidated Statement of Cash Flows (in thousands CAD) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($629) | ($6,061) | | Net cash used in investing activities | ($2) | ($467) | | Net cash (used in) provided by financing activities | ($852) | $6,557 | | Decrease in cash and cash equivalents | ($765) | ($1,030) | | Cash and cash equivalents at end of period | $1,048 | $1,419 | Notes to Interim Condensed Consolidated Financial Statements NOTE 1:- GENERAL This note outlines the company's operations, significant liquidity challenges, going concern risks, strategic developments including a potential reverse merger, and ongoing legal and regulatory matters Corporate Information and Operations IM Cannabis Corp. is listed on the CSE and NASDAQ, with primary revenue from medical cannabis sales in Israel and Germany, having ceased Canadian operations in November 2022 - The majority of the Group's revenues are generated from sales of medical cannabis products to customers in Israel, with the remainder from Germany[20] - The company has exited its operations in Canada, with related entities deconsolidated on November 7, 2022[24] Liquidity and Going Concern The company faces significant liquidity challenges, including a $10,518 thousand working capital deficit and $255,431 thousand accumulated deficit, raising substantial doubt about its ability to continue as a going concern Key Financial Indicators as of March 31, 2024 (in thousands CAD) | Metric | Amount | | :--- | :--- | | Cash and cash equivalents | $1,048 | | Working capital deficit | ($10,518) | | Accumulated deficit | $255,431 | | Q1 2024 Operating loss | ($5,630) | | Q1 2024 Negative operating cash flow | ($662) | - The company's financial condition raises substantial doubt about its ability to continue as a going concern[32] Strategic Developments and Transactions The company is pursuing a potential reverse merger with Kadimastem to pivot to biotechnology, has formally exited Canadian operations, and implemented restructuring in Israel to enhance efficiency - On February 13, 2024, the company entered a non-binding term sheet for a potential reverse merger with Kadimastem, where existing IMCC shareholders would hold 12% of the new entity, and the legacy cannabis business would be spun out as a contingent value right[50][51][52] - The company has exited operations in Canada through CCAA proceedings, and IMCC will likely realize no return from the restructuring[37][42][44] - The company implemented a restructuring plan in Israel in 2023, involving workforce reductions and operational changes to drive efficiencies and achieve sustainable profitability[49] Legal and Regulatory Matters The company faces NASDAQ non-compliance for its stock price, is contesting Canadian excise tax assessments for 2020 and 2021, and is defending a $15 million lawsuit alleging misrepresentation - The company is not in compliance with NASDAQ's minimum bid price rule and has until July 29, 2024, to regain compliance[58][59] - The company is contesting Notices of Assessment for Canadian Excise Tax for 2020 and 2021, believing its objections may lead to the assessments being vacated[61][62][63] - A complaint seeking $15 million in damages was filed against the company and certain directors/officers by former shareholders of MYM Nutraceuticals Inc., alleging misrepresentations related to its 2021 acquisition, which the company disputes[64][65] Other Corporate Matters The company revoked the Oranim pharmacy acquisition post-quarter end, received approval to acquire the remaining interest in Focus Medical Herbs Ltd., and noted a negative impact on operations from the Israel-Hamas war - An amendment signed on January 10, 2024, postponed unpaid installments for the Oranim pharmacy acquisition, with failure to pay by April 15, 2024, leading to revocation[72] - The company exercised its option to purchase the remaining 74% interest in Focus, with regulatory approval received on February 25, 2024[73] - The Israel-Hamas war, which began on October 7, 2023, has had a negative impact on the company's business operations, affecting employees, supplies, imports, and sales[75] NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES The interim condensed consolidated financial statements are prepared under IAS 34, with recent amendments to IAS 1, IFRS 16, IAS 7, and IFRS 7 adopted from January 1, 2024, having no material impact - The financial statements have been prepared in accordance with IAS 34, "Interim Financial Reporting"[76] - New amendments to IAS 1, IFRS 16, IAS 7, and IFRS 7 became applicable on January 1, 2024, and had no impact on the company's interim financial statements[77][78][79] NOTE 3:- INVENTORIES Total inventory decreased to $7,901 thousand as of March 31, 2024, from $9,976 thousand at year-end 2023, primarily consisting of bulk and packaged dried cannabis Inventory Breakdown (in thousands CAD) | Category | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Bulk cannabis (Work in progress) | $3,272 | $3,735 | | Packaged dried cannabis (Finished goods) | $4,196 | $5,651 | | Other products (Finished goods) | $433 | $590 | | Total Inventory | $7,901 | $9,976 | NOTE 4:- FINANCIAL INSTRUMENTS Warrant liabilities are measured at fair value using the Black & Scholes model, resulting in a $100 thousand finance expense in Q1 2024, a significant shift from $3,636 thousand finance income in Q1 2023 - Liability for Warrants is measured at fair value using the Black & Scholes model (Level 3)[88] - The revaluation of warrants measured at fair value resulted in a finance expense of $100 thousand for Q1 2024, compared to finance income of $3,636 thousand in Q1 2023[88] NOTE 5:- EQUITY As of March 31, 2024, the company had 13,394,136 issued common shares and 325,452 outstanding share options, following a 10-for-1 share consolidation in November 2022 Share Capital Composition | Class | Authorized | Issued and Outstanding (Mar 31, 2024) | | :--- | :--- | :--- | | Common Shares | Unlimited | 13,394,136 | - In January and February 2023, the company completed a LIFE Offering and a Concurrent Offering, issuing a combined total of 5,145,419 units at US$1.25 per unit[91][94] Share Option Movement Q1 2024 | Status | Number of Options | | :--- | :--- | | Outstanding at beginning of period | 325,452 | | Forfeited during the period | 0 | | Outstanding at end of period | 325,452 | | Exercisable at end of period | 309,184 | NOTE 6:- SELECTED STATEMENTS OF PROFIT OR LOSS DATA Selected expenses, including salaries and depreciation, decreased in Q1 2024 compared to the prior year, reflecting the company's cost-saving measures Selected Expenses (in thousands CAD) | Expense Category | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Salaries and related expenses | $1,878 | $2,458 | | Depreciation and amortization | $680 | $809 | NOTE 7:- NET EARNINGS (LOSS) PER SHARE The basic and diluted net loss per share significantly increased to $0.42 for Q1 2024, up from $0.05 in Q1 2023, driven by a larger net loss and higher weighted average shares outstanding Net Loss Per Share Calculation | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net loss attributable to equity holders (thousands CAD) | ($5,623) | ($600) | | Weighted average number of shares (thousands) | 13,394 | 11,308 | | Basic and Diluted Loss per Share (CAD) | ($0.42) | ($0.05) | NOTE 8:- OPERATING SEGMENTS The company operates in Israel and Germany, with Israel generating the majority of Q1 2024 revenue at $10,911 thousand but also incurring a larger segment loss of $4,508 thousand Segment Performance for Q1 2024 (in thousands CAD) | Segment | Revenue | Segment Loss | | :--- | :--- | :--- | | Israel | $10,911 | ($4,508) | | Germany | $1,152 | ($316) | Segment Performance for Q1 2023 (in thousands CAD) | Segment | Revenue | Segment Loss | | :--- | :--- | :--- | | Israel | $11,437 | ($1,618) | | Germany | $1,092 | ($557) | NOTE 9:- SUBSEQUENT EVENTS Subsequent to quarter-end, the company revoked the Oranim Pharmacy acquisition, resulting in a $2,753 thousand goodwill reduction, and secured new and extended existing loans totaling approximately $1,692 thousand - On April 16, 2024, the company revoked the Oranim Pharmacy acquisition, transferring its 51% shareholding back to the seller and recording a goodwill reduction of $2,753 thousand as of March 31, 2024[101] - On April 17, 2024, a subsidiary entered into a new one-year loan agreement for approximately $1,082 thousand with a 15% annual interest rate[102] - On April 17, 2024, an existing loan of approximately $610 thousand was extended to April 18, 2025, with an annual interest rate of 17%[102]